* Banks accused of overcharging clients on currency trades
* U.S. government pursuing lawsuit against Bank of NY Mellon
By Jonathan Stempel
NEW YORK, July 3 (Reuters) - JPMorgan Chase & Co and officials at Bank of New York Mellon Corp on Wednesday won the dismissal of lawsuits accusing them of overcharging clients for trading currencies.
U.S. District Judge Denise Cote in Manhattan threw out a lawsuit that accused the largest U.S. bank by assets of breaching a fiduciary duty to custodial clients by charging “hidden and excessive mark-ups” on currency trades.
Hours earlier, Cote’s colleague, Lewis Kaplan, made public his dismissal of a lawsuit by Bank of New York Mellon shareholders accusing bank officials of ignoring “red flags” or knowing that trades were being processed at the worst or near-worst prices of the day. Chief Executive Gerald Hassell was among the defendants in that case.
The JPMorgan lawsuit was led by the Louisiana Municipal Police Employees’ Retirement System, and sought class-action status on behalf of pension fund custodial clients.
Meanwhile, the Bank of New York Mellon lawsuit was led by the Iron Workers Mid-South Pension Fund and by California resident Marilyn Clark, and sought to force executives and directors to reimburse the bank for damages.
Lawyers for the plaintiffs in both cases did not immediately respond to requests for comment.
The lawsuits are among several in the last few years where federal and state regulators, customers and shareholders have accused custodial banks of defrauding clients of millions of dollars through overcharges on foreign exchange trades.
Custodial banks provide back-office and other services including accounting, asset valuations, currency trading, portfolio servicing and stock lending. Bank of New York Mellon is the world’s largest custodial bank, while JPMorgan is the third-largest.
In her decision, Cote rejected allegations that the underlying JPMorgan custodial agreement obligated the bank to process trades at “the best available market rate” or by any other particular measure.
She also said there was “nothing secret about the mark-ups” charged because they were disclosed in public databases and on trade confirmations.
Kaplan, meanwhile, said it is improper to hold Bank of New York Mellon executives and directors responsible for practices that the plaintiffs said resulted in more than $2 billion of liabilities, and damaged the bank’s bottom line, credit rating, reputation and stock price.
In his decision dated July 2, Kaplan said the lawsuit did not create “reasonable doubt that the board’s inaction was a valid exercise of business judgment,” and that shareholders should have demanded that the board take action before filing the lawsuit.
Kaplan handles nationwide civil litigation over whether Bank of New York Mellon from 2000 to 2011 overcharged pension funds and other clients on currency trades.
One such case was brought in 2011 by the U.S. government. Kaplan in April let it pursue the main claim, that the bank had fraudulently misrepresented that it would provide “best execution” to its trading clients.
JPMorgan spokesman Justin Perras said in a statement that the bank is gratified by Cote’s decision, which ”vindicates our position and our business.
Bank of New York Mellon spokesman Kevin Heine said that the bank is pleased with Kaplan’s decision. A lawyer for the Bank of New York Mellon officials did not immediately respond to requests for comment on Kaplan’s decision.
The cases are Louisiana Municipal Police Employees’ Retirement System et al v. JPMorgan Chase & Co et al, U.S. District Court, Southern District of New York, No. 12-06659; and In re: Bank of New York Mellon Corp Shareholder Derivative Litigation in the same court, No. 11-08471. The nationwide litigation is In re: Bank of New York Mellon Corp Forex Transactions Litigation in the same court, No. 12-md-02335.